Traditionally regarded as a cornerstone of global innovation, the pharmaceutical industry now faces unprecedented challenges, prompting even the largest companies to make difficult decisions. One significant outcome of these pressures is the widespread layoffs within clinical trial departments, with over 14,000 layoffs in 2024 alone, particularly affecting roles vital to developing new therapies 1.

These layoffs are closely tied to deteriorating financial performance, as evidenced by declining metrics such as the current ratio, ROA (Return on Assets), ROE (Return on Equity), and EBITDA margins. These indicators reflect the industry’s struggle to maintain financial stability due to rising operational costs, heightened competition, and increasing regulatory pressures. For example, Pfizer’s decision to cut $3.5 billion in costs and Takeda’s closing down of two R&D facilities highlights a broad industry trend where big pharma companies are prioritizing short-term financial health over long-term innovation to address immediate financial strains 1.

Compounding these challenges, the U.S. Inflation Reduction Act (IRA) is expected to further strain the industry by introducing drug pricing reforms that will significantly reduce revenue streams beginning in 2026 2, 3. The ongoing impact of inflation and persistent supply chain disruptions 4 has already driven up the costs of materials, labor, and transportation, making it difficult for pharmaceutical companies to maintain profitability—especially as drug prices are often regulated and cannot be adjusted to match rising costs. Additionally, the looming expiration of key drug patents 5, 6 is opening the door to competition from generics and biosimilars, further eroding revenues from once-lucrative blockbuster drugs.

This combination of financial pressures is forcing companies to streamline operations, focus on core assets, and reduce expenditures wherever possible, including cutting back on resource-intensive areas like clinical trials. As a result, the industry may face slower innovation and a reduced capacity to bring new therapies to market, with significant implications for the future of healthcare, if companies cannot adapt their clinical trial processes and organizational structures to this new economic reality.

What is Happening Financially with Big Pharma?

The recent wave of layoffs in the pharmaceutical industry, particularly among clinical trial personnel, can be directly linked to declining financial performance indicators across major companies. These financial metrics—current ratio, ROA (Return on Assets), ROE (Return on Equity), and EBITDA margins—are crucial in understanding Big Pharma’s pressures today. We averaged annual financial ratios from the nine largest global biopharmaceutical companies to generate “combined” ratios for benchmarking the ratios from 2019 – 2023.

ROA indicates how efficiently a company uses its assets to generate profit. A lower ROA means the company’s assets are ineffective in producing income. The combined ROA for major pharmaceutical companies has decreased by about 30% over the last five years. This decline is partly due to the high costs of developing

innovative therapies, which require significant investment without immediate returns. Additionally, as patents expire on blockbuster drugs, the revenue generated from these assets diminishes, further reducing ROA. This inefficiency in asset utilization is leading companies to scale back on resource-intensive projects like clinical trials.

ROE measures how effectively a company uses shareholders’ equity to generate profits. A declining ROE indicates lower profitability or dilution of shareholder value due to increased equity without corresponding profit growth. Big Pharma’s combined ROE has declined by around 35% since 2019. This drop can be attributed to the dilution of shareholder value as companies raise

additional equity to fund expensive R&D projects. The revenue erosion from generics and biosimilars following patent expirations further lowers profitability, reducing ROE. This financial strain pushes companies to prioritize immediate returns, often at the expense of longer-term projects like clinical trials, leading to workforce reductions in these areas.

The EBITDA margin reflects a company’s core profitability before accounting for interest, taxes, depreciation, and amortization. A declining EBITDA margin indicates that operational costs are rising faster than revenues. The combined EBITDA margin for these companies has decreased about 40% over the past five years.

Rising costs in clinical trials, compliance, and inflation-related expenses are likely eating into profitability. Additionally, anticipated pricing pressures from the Inflation Reduction Act (IRA) lead companies to cut costs preemptively, impacting their ability to sustain large-scale clinical trials.

The current ratio measures a company’s ability to cover its short-term liabilities with its assets. A declining current ratio suggests tighter liquidity, meaning companies might struggle to meet their short-term obligations. The combined current ratio for Big Pharma has dropped by approximately 30% from 2019 to 2023. This

decline highlights the financial strain from rising operational costs and increased R&D expenditures. Pharmaceutical companies hold fewer liquid assets than their liabilities, signaling potential cash flow challenges.

Change is Happening in Big Pharma; Is it Enough?

Big Pharma is actively embracing innovative strategies to navigate the challenges of financial pressures and the need for more efficient clinical trials. A significant focus is on Decentralized Clinical Trials (DCTs), which have gained traction to enhance patient accessibility and engagement while reducing operational costs 7. For example, companies like Bayer are leading the charge with their OCEANIC study, a fully remote global trial involving 18,000 patients 8, which involves leveraging digital health technologies, such as telehealth and electronic consent, to streamline trial processes and ensure patient needs are prioritized more inclusively and efficiently​.

Moreover, AI and in silico trials are being integrated into drug development to reduce costs and improve time efficiency and are now becoming more widely accepted by regulatory authorities. For instance, InSilicoTrials has pioneered using virtual patients and AI-driven models to simulate biological processes, offering a cost-effective alternative to traditional in vivo and in vitro methods. This approach accelerates the drug development process and addresses ethical concerns by minimizing the need for animal testing.

Additionally, pharmaceutical giants are increasingly integrating Digital Health Technologies (DHTs) into clinical trials to enhance efficiency, data accuracy, and patient engagement. For example, Johnson & Johnson is researching a digital device to replace traditional ECGs, potentially simplifying the trial process and improving patient comfort by gathering health data more conveniently. Similarly, Novartis is working on a cohesive platform to facilitate the regulatory acceptance of DHTs, aiming to ensure that digital tools meet stringent requirements and can be broadly adopted across various studies. Roche is also advancing the use of DHTs through digital biomarkers in Alzheimer’s disease trials, which could lead to earlier detection and more effective treatments. These innovations collectively highlight how DHTs are transforming clinical trials, though the industry must accelerate adoption to realize their full potential​.

However, despite these innovations’ promise, there is growing concern that their adoption is not progressing quickly enough to counterbalance the mounting financial challenges, raising doubts about the industry’s ability to sustain long-term growth. The complexity of integrating new technologies and the slow adaptation of regulatory frameworks means that the potential benefits of these advancements are not yet fully realized.

No. Innovation Isn’t Happening Quickly Enough.

Despite the rapid advancements in other industries, clinical trials have historically lagged in adopting the latest technological innovations. Industry experts and leaders are increasingly voicing concerns about this slow pace of innovation. Recent industry discussions highlight that this delay is primarily due to structural resistance to technological change and financial constraints that create a digital divide within the industry. These challenges have made it difficult for new technologies to be implemented and scaled effectively across most studies, contributing to concern within the industry about the pace of progress.

Layoffs: Could it Be Restructuring?

As the pharmaceutical industry undergoes significant changes, recent layoffs could indicate deeper structural adjustments rather than mere cost-cutting. Integrating new technologies and the demand for more agile and adaptable teams may drive companies to reorganize their workforce. However, this restructuring is not just about technology; it also involves a cultural shift within organizations. Despite the desire for innovation, entrenched organizational barriers and resistance to change often slow progress, making restructuring efforts more challenging but necessary.

This historical cultural resistance is evident in the industry’s reluctance to fully embrace new processes and technologies, such as Risk-Based Quality Management (RBQM) and electronic Clinical Outcome Assessments (eCOA). Consequently, restructuring efforts go beyond merely adopting these tools—they require dismantling ingrained organizational barriers that hinder progress. To foster a more dynamic, innovation-friendly environment, companies must focus on technology innovation and shifting the organizational mindset. As companies work to realign their workforce with the demands of modern clinical trials, these layoffs may reflect a broader strategy to build a more adaptable and forward-thinking industry, or they may signal an acknowledgment by Big Pharma of the financial pressures that lie ahead.

The Question Remains: Will The Rate of Innovation Supersede Financial Pressure?

As the pharmaceutical industry grapples with expiring blockbuster patents and the looming financial pressures of the Inflation Reduction Act by 2026, a critical question emerges: Can innovation keep pace with these challenges? Organizations across the industry have made significant strides in adopting DCTs, as according to recent data, 64.7% of larger organizations have implemented DCTs, and 66.7% of mid-sized organizations have adopted these methodologies. However, despite these encouraging adoption rates, there remains concern that even widespread innovation would likely not fully counterbalance the impending financial challenges in time.

The speed and scale of innovation implementation will be critical determinants of whether the pharmaceutical industry can overcome its financial challenges and continue to thrive. Suppose the industry cannot accelerate its pace of innovation. In that case, it may be found that the financial pressures from patent expirations and new federal pricing requirements overshadow the benefits these new methodologies offer. The coming years will test whether the industry’s current innovation trajectory is sufficient to meet the looming financial challenges.​

References:

  1. https://www.biospace.com/the-6-largest-biopharma-layoffs-of-2024-so-far ↩︎
  2. https://www.bcg.com/publications/2023/navigating-inflation-reduction-act-impact-on-drug-pricing-innovation ↩︎
  3. https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-inflation-reduction-act/ ↩︎
  4. https://www.pharmaceutical-technology.com/pricing-and-market-access/inflation-pharma-industry/ ↩︎
  5. https://pharsight.greyb.com/articles/blockbuster-drugs-expiring-in-2025 ↩︎
  6. https://www.dcatvci.org/features/generic-drugs-blockbusters-facing-us-patent-expiry/ ↩︎
  7. https://www.clinicaltrialvanguard.com/conference-coverage/decentralized-clinical-trials-big-pharmas-new-frontier/ ↩︎
  8. https://www.clinicaltrialvanguard.com/conference-coverage/innovative-dct-leap-bayers-new-oceanic-study/ ↩︎
Moe Alsumidaie
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Moe Alsumidaie is Chief Editor of The Clinical Trial Vanguard. Moe holds decades of experience in the clinical trials industry. Moe also serves as Head of Research at CliniBiz and Chief Data Scientist at Annex Clinical Corporation.